‘Trump 2.0″ looms large over the global economy

Inflation, interest rates and inflation mean that 2025 is shaping up to be an interesting year for the global economy. One in which growth is expected to remain “stable but moderate” at 3.2%, according to the International Monetary Fund. So what does this mean for all of us?

Just a week before Christmas there was a welcome gift for millions of American borrowers – interest rates have fallen for the third time in a row.

However, stock markets fell sharply after the world’s largest bank, the chairman of the US Federal Reserve, Jerome Powell, made it clear that he should not expect another rate cut in 2025 as expected, as the fight against inflation continues.

“From now on, it’s a new phase, and we’re going to be careful with other saws,” he said.

In recent years, the Covid epidemic and the war in Ukraine have caused prices to rise sharply around the world, and although prices are still rising, they have fallen significantly.

Even so, November noticed rising inflation in the US, eurozone and UK up to 2.7%, 2.2% and 2.6% respectively. It highlights the challenges many central banks face in the so-called “last mile” in their fight against inflation. Their target is 2%, and it may be easier to achieve if the economy is growing.

However, the main problem for global growth “is uncertainty, and the uncertainty comes from what will come out of the US under Trump 2.0”, says Luis Oganes, who is the director of international research at investment bank JP Morgan.

Since Donald Trump won the November election he has continued to threaten new tariffs on US trading partners, China, Canada and Mexico.

“The United States is moving towards an isolationist policy, raising tariffs, trying to provide full protection for US manufacturing,” says Oganes.

“And while this will help US growth, at least in the short term, it will hurt many countries that depend on trade with the US.”

The new tariffs “could be very damaging” to Mexico and Canada, as well as being “harmful” to the US, according to Maurice Obstfeld, a former economist at the International Monetary Fund, and a former economic adviser to President Obama.

He cites car manufacturing as an example of an industry that “adopts the distribution channels spread across the three countries. If you disrupt the trade, you have a big disruption in the car market”.

This would raise prices, reduce demand for products, and hurt the company’s profits, which would lower costs, he explains.

Mr. Obstfeld, who is now with the Peterson Institute for International Economics, adds: “Bringing these kinds of taxes into a country that is very dependent on trade would be harmful to growth, it would bring down the world.”

Threats of tariffs have also helped pressure resignation and Canadian Prime Minister Justin Trudeau.

Although most of what the US and China trade they already have tariffs since Donald Trump’s first term in office, the threat of new tariffs is the biggest challenge for the world’s second largest economy in the coming year.

In his New Year’s address President Xi Jinping agreed “problems of uncertainty in the external environment”but he said the economy was “too high”.

Exports of low-cost products from its factories are vital to China’s economy. A drop in demand due to rising prices could create a host of domestic problems, including a slowdown in consumer spending and business sales, which the government is trying to address.

This is helping, according to the World Bank, which at the end of December raised expectations for China’s growth from 4.1% to 4.5% in 2025.

Beijing has not set a growth target for 2025, but estimates it is at 5% last year.

“Tackling the sector’s challenges, strengthening social security, and managing public finances are key to achieving success,” said World Bank Country Director for China, Mara Warwick.

These domestic problems mean that the Chinese government is “receiving” foreign investment, according to Michael Hart, president of the American Chamber of Commerce in China.

Tensions between the US and China, and tariffs have escalated under the Biden administration, meaning some companies have looked to move production elsewhere.

However, Mr. Hart points out that “it took 30 to 40 years for China to be seen as a strong producer”, and “companies have tried to mitigate some of these risks… nobody is ready now to replace China.”

One industry that should continue to be at the forefront of global trade wars is electric vehicles. More than 10 million were produced in China last year, and this control made the US, Canada and the European Union (EU) pay tariffs on them.

Beijing says they are not doing justice, and they are suing them at the World Trade Organization.

However, it is the hope of Donald Trump to impose tariffs that are related to the EU.

“Restrictions on trade, protectionist measures, are not helping growth, and ultimately have an impact on inflation that is unknown,” the president of the European Central Bank, Christine Lagarde, said last month. “[But] in the short term, it’s probably inflation. “

Germany and France are the traditional engines of economic growth in Europe. But theirs not doing well amid political instability over the past year means that, despite recent growth, the eurozone is at risk of losing momentum in the coming year.

That is, unless consumers are spending more and businesses are increasing their spending.

In the UK higher prices can also come from tax and wage increases, according to another study.

One obstacle to lowering interest rates in the eurozone is that inflation remains at 4.2%. This is more than double the target of 2%, and the high pressure on wages has been an obstacle to lowering it.

It has been the same in the US according to Sander van ‘t Noordende, CEO of Randstad, the world’s largest recruitment company.

“In the US, for example, [wage inflation] it will remain around 4% in 2024. In some Western European countries, it is much higher than that.

“I think there are two things there. There’s a lack of talent, but there’s also, inflation and people wanting to get more for the job they do.”

Mr. van ‘t Noordende adds that many companies are giving extra money to their customers, which is increasing inflation.

The decline in the global labor market reflects a lack of “energy” from the industry and economic growth is needed to change this, he says.

“If the economy is doing well, business is growing, they start hiring. People see exciting opportunities, and you start to see people moving around”.

One person who is starting a new office in 2025 is Donald Trump, and a wide range of economic plans including tax cuts and deregulation could help the US economy continue to improve.

Although details will not be revealed before he returns to the White House on January 20, “all indications are that the US will continue to follow suit with the rest of the world,” said JP Morgan’s Oganes.

He hopes that inflation and interest rates will continue to fall around the world, but warns that “a lot will depend on the policies that are sent, especially from the US.”